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Implications of the US Tax Reform for Transatlantic FDI

Author

Listed:
  • Friedrich Heinemann

    (Centre for European Economic Research (ZEW)
    University of Heidelberg)

  • Marcel Olbert

    (University of Mannheim)

  • Olena Pfeiffer

    (Centre for European Economic Research (ZEW)
    University of Heidelberg)

  • Thomas Schwab

    (Centre for European Economic Research (ZEW)
    University of Mannheim)

  • Christoph Spengel

    (Centre for European Economic Research (ZEW)
    University of Mannheim)

  • Kathrin Stutzenberger

    (University of Mannheim)

Abstract

On 22 December 2017 President Trump signed the Tax Cuts and Jobs Act. This corporate tax reform can be considered the most significant amendment of the US corporate tax code since 1986. Besides the reduction of the corporate income tax rate from 35% to 21%, the Tax Cuts and Jobs Act entails features like a switch from worldwide income taxation to territorial taxation, as well as immediate deductions for certain assets. This leads to a substantial improvement for the US in global tax competition. In this paper, we analyse the effects of the US tax reform on FDI flows between Europe and the US. We find that European high-tax countries in particular will suffer from a net outflow of FDI.

Suggested Citation

  • Friedrich Heinemann & Marcel Olbert & Olena Pfeiffer & Thomas Schwab & Christoph Spengel & Kathrin Stutzenberger, 2018. "Implications of the US Tax Reform for Transatlantic FDI," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 53(2), pages 87-93, March.
    • Handle: RePEc:spr:intere:v:53:y:2018:i:2:d:10.1007_s10272-018-0727-6
    DOI: 10.1007/s10272-018-0727-6
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    Cited by:

    1. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819.
    2. Casi, Elisa & Spengel, Christoph & Stage, Barbara M.B., 2020. "Cross-border tax evasion after the common reporting standard: Game over?," Journal of Public Economics, Elsevier, vol. 190(C).
    3. Mindy Herzfeld, 2021. "Designing international tax reform: lessons from TCJA," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1163-1187, October.
    4. Dorine Boumans & Clemens Fuest & Carla Krolage & Klaus Wohlrabe, 2020. "Expected effects of the US tax reform on other countries: global and local survey evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1608-1630, December.
    5. Ann-Christin Rathje & Klaus Wohlrabe, 2018. "International Tax Competition from a Business Perspective," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(21), pages 46-55, November.

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